Fair Market Value (FMV) Calculation Methodology A FMV price is established to facilitate business between buyers and sellers by setting a price at which both are willing to purchase a share of stock. In a privately held company, the Board of Directors sets the FMV. In a public company, the FMV is established by referring to a recognized market trading price of the stock (i.e., NASDAQ). Note: Most businesses enter a FMV price daily. The following table illustrates the FMV calculation methods and relevant price variables available in the system. Table 1: FMV Calculation Methods Allowed vs. Price Variables Maintained Required Price Variables FMV Calculation Method [current] Day Close Prior Day Close High Price Low Price Close Price X X Market Price [current] Day Average X X Prior Day Average X X [use] Market Price X FMV Price Value using Prior Day Designation When you select a Prior Day FMV (Average or Close), the system uses the inputs from the price table that have a date closest to the date for which you are trying to calculate the FMV. Transcentive Web Platform 1
Note: To determine which price record represents the prior price, the system collects and orders prices, in reverse chronological order, from the preceding six months. Example 1: A company enters one price on the last Friday of each month of the year. Since price history considers the prices for the last six months, the following prices are displayed: Price Date High Price Low Price Close Price June 25, 2004 5.00 4.00 4.75 May 28, 2004 3.00 2.00 2.75 April 30, 2004 4.00 1.00 3.75 March 26, 2004 6.00 4.00 5.75 February 27, 2004 1.00 1.00 1.00 January 30, 2004 5.00 4.00 4.75 Suppose you are requesting the FMV for July 1, 2004. When all price records with a price date inclusively between June 30, 2004 and January 1, 2004 (above) are considered, the most recent record is used to determine the FMV (in this case, June 25 is the most recent). Notes: If the FMV Method is Prior Day Close, then the FMV calculated by TWP on July 1, 2004 would be 4.75. If the FMV Method is Prior Day Average (of High and Low), then the FMV calculated by TWP on July 1, 2004 would be 4.50 where high price + low price / 2 = FMV ((5 + 4) / 2) = 4.50 Transcentive Web Platform 2
Example 2: The company enters one price on the last Friday of each month. For the current year, there are five prices in price history, as no entry was made on June 25, 2004. Price Date High Price Low Price Close Price May 28, 2004 3.00 2.00 2.75 April 30, 2004 4.00 1.00 3.75 March 26, 2004 6.00 4.00 5.75 February 27, 2004 1.00 1.00 1.00 January 30, 2004 5.00 4.00 4.75 Suppose you are requesting the FMV for July 1, 2004. When all price records with a price date inclusively between June 30, 2004 and January 1, 2004 (above) are considered, the most recent record is used to determine the FMV. Since there was no price entered for the month of June, the price entered for May 28th is the most recent and is therefore used. Notes: If the FMV Method is Prior Day Close, then the FMV calculated by TWP on July 1, 2004 would be 2.75. If the FMV Method is Prior Day Average (of High and Low), then the FMV calculated by TWP on July 1, 2004 would be 2.50 where high price + low price / 2 = FMV ((3 + 2) / 2) = 2.50 Example 3: The company enters one price per quarter. Price Date High Price Low Price Close Price June 30, 2004 5.00 4.00 4.75 March 31, 2004 6.00 4.00 5.75 December 31, 2003 1.00 1.00 1.00 Transcentive Web Platform 3
Suppose you are requesting the FMV on a date on or after July 1, 2004. When all price records with a price date inclusively between June 30, 2004 and January 1, 2004 (above) are considered, the most recent record is used to determine the FMV. Notes: If the FMV Method is Prior Day Close, then the FMV calculated by TWP on July 1, 2004 would be 4.75. If the FMV Method is Prior Day Average (of High and Low), then the FMV calculated by TWP on July 1, 2004 would be 4.50 where high price + low price / 2 = FMV ((5 + 4) / 2) = 4.50 No Price History The FMV calculation that occurs when issuing a grant or conducting a transaction (i.e., an exercise or disposition) relies on price history. The application maintains stock price history in the database by date. Note: The system collects and orders prices, in reverse chronological order, from the preceding six months. It uses these dates to determine which price record represents the most recent price. If the date of the grant, exercise or disposition occurs beyond six months of the last price entry, no price is reported. Example 4: Your company has not entered a price record in 9 months. If the current date is September 1, 2004 and you are issuing a grant, the last price entered was January 1, 2004. Since this date is beyond the six month price history limit, no price is reported for the grant for this date of entry. In the following illustration, a grant is issued but there is no price for the date of the grant. The calculated FMV field contains no value but the grant is issued. Transcentive Web Platform 4
Note: We recommend that you maintain your price history at all times and avoid issuing grants or conducting exercises or dispositions without price history. To view price history, see Company > Prices > Stock Price History. Figure 1: Issuance of a Grant without Price History You can manually enter the FMV at the time of issuance. However, in order for the Calculated FMV field to populate, you must have a price in the price table. You can enter prices using the Company > Prices subfunction. For information on populating the price table, see the Prices topic in the platform s help system. Transcentive Web Platform 5
FMV Calculation Methods Used by System Function The table below lists the FMV calculation method used by each function in the TWP Application. The table also indicates if the user can override the calculated FMV value. Table 2: FMV Calculation Methods Used by System Function Function Company > Stock Class Company > Plan > Stock Class > Grant Type Overrides Allowed Price Vesting X No Issue Grant X Yes Modify Grant X Yes Exercises: Cash Exercise X Yes Cashless Exercise X Yes Net Proceeds Exercise X Yes Net Shares Exercise X Yes Restricted Lapse X Yes Restricted Stock Exercise X Yes Stock Appreciation Right Exercise X Yes Stock Swap Exercise X Yes Modify Exercise X Yes Fill Suspended Exercise X Yes Update Suspended Transactions X Yes Sell Stock X Yes Modify Stock Sale X Yes Fill Stock Sale X Yes Taxes Due X No Create/Modify Valuations X No Transcentive Web Platform 6